Editor’s Memo: Sustained stability key to recovery

FINANCE minister Tendai Biti Friday presented a US$3,8 billion 2013 national budget, maintaining a hopeful line while painting a gloomy picture of the situation as he rang the alarm bells about the downside risks facing the economy.

Report By Dumisani Muleya

Given the current environment, it was a decent effort by Biti but, as we discussed in our newsroom just before the minister’s delivery, our budget is so paltry that it is smaller than the allocation of one ministry in South Africa or the annual turnover of some individual companies there.

Although Biti tried his best, there was nothing really surprising, except for a few interventions here and there, for instance new measures in the banking sector, and other actions.

Biti and Reserve Bank officials, as well as organised economic groups, have throughout the year given us information through fiscal and monetary policy reviews showing the overall picture and direction of the economy.

After a prolonged period of economic and political meltdown, Zimbabwe’s economic stabilisation and recovery began with the end of hyperinflation in 2009 following the formation of a coalition government.

Given a favourable external environment, the adoption of the multicurrency system and resultant exchange rate stabilisation, cash-budgeting and discontinuation of quasi-fiscal activities, the macro-economic situation stabilised.

The country made substantive progress in economic recovery. Policy reforms implemented after the hyper-inflation period, supported by significant off-budget grants, fuelled recovery.

Although the economy rebounded strongly, posting growth rates well above those of other countries in the region, it was coming from a low base and there was always a need for a more durable base to sustain fast and inclusive growth, undermined by dysfunctional state enterprises key to recovery.

While real economic growth in 2011 remained robust at an average of 9%, mainly sustained by strong external demand for key minerals and continued recovery in domestic demand, the outlook began to turn gloomy during the course of the year.

Biti was forced to revise downwards his growth projections from 9,4% to 5,6% during his mid-term fiscal policy review. His budget was cut from US$4 billion to US$3,6 billion, and again yesterday to US$3,5 billion. Growth targets were further cut to 4,4%, stretching the negative trend.

To his credit, Biti is however clear on serious downside risks facing his 2013 budget. He said these included the threat of another poor rain season; the collapse in international commodity market; further external shocks in the context of current limited buffers; the “wait and see” attitude from investors; slow pace of reform in government; continued discord and cross-talk particularly on the issue of investment and indigenisation; lack of proper revenue inflows particularly from diamonds and fiscal slippages and overruns, especially emanating from referendum and election costs.

All these downside risks are significant, but the two main threats to the outlook are the possible resurgence of political instability ahead of elections next year and a global economic downturn. In particular, a sharper recession in Europe and deceleration in China would significantly affect commodity prices as well as activity in South Africa, Zimbabwe’s major trading partner.

But the real problem is what Biti touched on in passing when he said: “The biggest risk to this economy in 2013 remains that of violent, contested state elections. Any reproduction even on a small scale of the fraticism (fratricide) and friction we saw in 2008 will virtually collapse the nascent foundations we have tirelessly re-laid in the last 45 months. A case of two steps forward and 20 steps backwards.”

Political crises place a premium on development, as he said. Indeed, we cannot afford to carry-on along these cyclical paths of permanent conflict temporarily suspended by short periods of peace. We need sustained stability to ensure recovery.